Facebook Takes Patience, Venture Investor Says Chill: Street Whispers

Ted Schlein of Kleiner Perkins says Amazon's path as a public company may help guide Facebook.

Antoine Gara

NEW YORK (TheStreet) -- After Facebook (:FB) and Groupon's (:GRPN) disappointing initial public offerings, some venture investors aren't giving up hope just yet.

In fact, Ted Schlein, a general partner at venture capital giant Kleiner Perkins Caufield & Byers looks to the boom and bust stock swings of Amazon (:AMZN) as a guide for how both companies may navigate post-IPO life.

As with Amazon's turnaround from a poster child of the dot-com bust -- to one of the most watched growth stocks in the U.S. -- the key for Facebook and Groupon will be to continue experimenting with business and revenue models even if Wall Street decries the uncertainty.

Schlein says one of the best lessons he's learned in his career as a venture investor comes from Amazon's Jeff Bezos, arguing that it is applicable to Facebook and Groupon as they try to overcome a rough first year in the public spotlight. The key, he says, is as Amazon differentiated itself from online retail competitors and is now a credible challenger to Apple's (:AAPL) dominance in the tablet and mobile market, Bezos stuck with his bold plans for the company,shrugging off Wall Street skepticism.

As Schlein puts it, Bezos's perspective in building Amazon was, "this is our plan and what we are going to do. Wall Street can come for the ride."

For Facebook, which still needs to better position itself on mobile devices and figure out how to monetize a base of nearly a billion users, Amazon's path to success is instructive. To eventually impress Wall Street, chief executive Mark Zuckerberg should continue to invent and experiment with the social network, unlocking the revenue opportunities that will satisfy investors without alienating customers.

For instance, Facebook has built a strong presence in "identity," which is to say that consumers can log into an array of Web products like Spotify, newspaper subscriptions and mobile apps simply using a Facebook password. It's an unheralded function in Facebook's growing Web dominance, which Schlein says may yet prove to be a strong revenue source. "I think it is a big deal that people haven't thought about," notes Schlein, of the technology.

The same type of experimentation is applicable to Groupon and other Kleiner Perkins backed blue chips like Twitter and Square, which have not yet hit public markets. Meanwhile, in spite of increasing competition in the respective markets of Facebook, Groupon and Square, Schlein sees each company as a leader, a key in hypercompetitive, fast changing markets. Although many question whether Groupon will be overcome by new entrants, Schlein notes anyone outside the top two or three in a Web market is just an "also ran."

Schlein spoke to TheStreet after making a presentation on the changing landscape of venture capital at Thursday's Dow Jones Private Equity Analyst conference. In his presentation, Schlein downplayed investor frustration with Facebook and Groupon, taking a bigger picture perspective that differentiates Silicon Valley based investors from their Wall Street bretheren.

About a generally weak vintage of tech IPO's in the past year, Schlein downplayed the performance, highlighting a more long-term view. "The venture industry is a very long term industry. We look at late stage the same way. You have to be patient and believe in the management team," he said.

For instance, in Facebook's IPO, Schlein noted, "anything that achieves that much hype ahead of time, anything that sees that much hype and negativity, usually it's neither of those two things." His perspective is even as the company takes its lumps in shifting toward mobile, where revenue opportunities are still muddled, Facebook's network of users is still hard to dismiss. "Would you bet against a team that assembled 900 million of anything?"

It would also be wrong for Wall Street investors to assume that the wake Facebook's IPO struggles would temper the language or optimism coming from VC giants like Schlein and Kleiner Perkins, as they tout startups valued in secondary markets in the billions. About Square, a mobile payments startup recently valued at $3.25 billion, Schlein said the, "if you become the digital wallet and digital payment system for all things digital, it's enormous. Maybe it's the rise of new kind of currency, a new kind of banking system. That $3 billion might be cheap I don't know."

-- Written by Antoine Gara in New York

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